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1/03/07 Stock Split Report Update Update
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Stock Split Report Subscribers:
Full report issues Thursday.
MARKET ALERTS
Targets hit alerts: CTRP
Buy alerts: CTRP; EZPW; HRS
Trailing stops: LH
Stop alerts issued: CLE
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- 2007 starts with a little bit of everything, ends up going nowhere.
- ISM recovers after one-month contraction.
- ADP report suggests jobs weakness.
- Wednesday worked off the long weekend and now the early 2007 direction can begin.
Big upside surge, reversal, meek recovery. 2007 start has it all.
After four days of closed markets there was a bit of pent up demand, particularly given that Asian and indeed most foreign markets enjoyed a strong start to 2007. Bonds and stocks surged at the open. It was more than foreign markets. Oil was down big on the session (58.32, -2.73) after finishing 2006 almost where 2005 ended. WMT reported 1.6% gain in sales on the holiday season, quite a bit better than anticipated.
The news sparked up some strong early buying with DJ30 ringing up a triple digit gain and NASDAQ jumping nearly 40 points. There was a hitch in the early going, but a stronger than expected ISM that returned above 50 picked things right back up and sent the indices to new session highs, getting NASDAQ up that 40 points. Looked like a big session.
Things started to soften after a couple of hours, moving laterally into lunch. Then they started the slide lower. The slide turned into hard selling when the FOMC minutes were released. The Fed noted the "subdued tone of some incoming indicators [the ISM no doubt] meant that the downside risks . . . had increased a little and become a bit more broadly based than previously thought," but still "all members agreed that the risk that inflation would fail to moderate . . . remained the predominant concern." So, the Fed noted things were weaker but it didn't care; the market did. It was a left-handed positive that the Fed noticed and even mentioned the slowing, but the overriding mantra regarding inflation pressures remained, and sellers used that as a rallying point.
Stocks lost their gains in the afternoon, quite a reversal given the big early moves. It took a somewhat tepid last hour rebound to close things mixed. Techs still led the way, but their 0.33% gain was peanuts compared to the early move. At the end of the day not much was decided; the sellers and buyers battled and the indices remained in relatively the same position. Pressure was let off on both sides, and now the move for early 2007 can take place.
Technically you can call it a reversal day. Stocks started strong, posted big gains, but mainly held within their recent ranges (DJ30 broke higher to a new high yet again). Then the sellers moved in and reversed the action. No breakdowns and most stocks held up just fine, but a solid advance and strong internals gave way to a reversal on volume and flat breadth. We don't want to read too much into it given it was the start of the year and there was a 4-day lay off. That artificially jumped stocks higher and that gave sellers plenty to work with. You still hate to see any strong move undercut by sellers in such a decisive fashion even if there was no breakdown. All in all we still see a lot of good stocks holding support and in good position to break higher. They will tell the story of the market here.
THE ECONOMY
December ISM gets manufacturing back on growth track
After a one-month dip below the 50 level that marks contraction versus expansion, the national manufacturing sector returned to expansion with a 51.4 reading versus the 50.0 expected and November's 49.5 level. Solid news as new orders (52.1) and production (51.8) rose nicely (from sub-49) while prices fell sharply (47.5 from 53.5). Prices are telling You definitely don't want a trend of sub-50 readings emerging.
While there has been no trend below the 50 level, a downside trend is in place since September 2005. The ISM peaked at 58 at that time and has trended lower since, making a series of lower highs, and with the October 2006 reading, it made a significant new low. This is part of a general trend lower since the 2003 peak just over 70. Sounds ominous, but bigger picture the recent ISM readings are just below the average since 1991.
Again, you don't want to see it starting a trend below the 50 level, and that is quite dependent upon the economic outlook. The ISM manufacturing report is much more sensitive to economic dips and blips than the ISM services report, and with key leading economic indicators recovering and suggesting moderate growth returning further into 2007, the ISM should continue December's modest recovery. It is well into the economic expansion, and manufacturing suffers from a 50 year decline in overall levels, coinciding with the US' shift to services from devices. Thus don't expect any major climbs ahead, just holding near the average (about 54 for the past dozen years). Not going to complain about that.
ADP jobs survey.
The government's jobs report is out on Friday, but as usual the ADP private survey was out early. It was originally to be a 115K gain or thereabouts, but ADP revised it to -40K. Ouch. Now the accuracy of this report is checkered at best. Recall a few months back it predicted a major decline; that wasn't the case that month. Moreover, jobs have since been revised even higher. Last month it got it right. In short, who knows whether it is accurate or not, at least with respect to the government's report. Indeed, given the huge disparities in the government reports across the board do we give them more weight than a private survey when the private company's livelihood is derived from jobs? Food for thought.
Bigger picture, if ADP is correct, a slowing jobs market does not necessarily mean the end of the line. Seasonal attributes abound this time of the year and they can really skew the results. Employment is a very lagging indicator as well, and though the ISM fell below 50 in November, it rebounded and indeed other economic indicators faded but are likely to rebound as well. In short, employment is not a leading indicator, and if the leading indicators still show growth we don't have to worry too much about what the employment figures are saying, particularly given the seasonal influences that can really jack with the final numbers.
THE MARKET
MARKET SENTIMENT
VIX: 12.04; +0.48
VXN: 17.5; +1.27
VXO: 11.57; +0.32
Put/Call Ratio (CBOE): 0.85; -0.03
Bulls versus Bears: Bulls are still easing back but still remain above the key 55% level. Bears continued their decline, and this time they broke below the 20% level and that is considered bearish. If you get too many bulls and too few bears, there is no ammunition on the sidelines to keep shooting the market higher.
Bulls: 56.5%. A more significant decline this week, down from 58.8% and the 59.6% high on this recent spike. That makes 6 weeks above 55%, the level where the market is viewed as overdone and some corrective activity can enter. Came within a whisker of the January 2006 peak at just above 60%.
Bears: 19.6%. Bulls may be adjusting back from their peaks, but bears are falling below key levels, offsetting any improvement in the number of bulls. Bears flirted with 20% last week (20.6%) and made good on it this week. This continues a steady slide (21.3%, 23.9% before) from the 37.1% hit in July (the highest level in this entire cycle), now so far in the distance you can barely see it. Hit a new post-2002 high in that late June move, eclipsing the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005).
NASDAQ
Stats: +7.87 points (+0.33%) to close at 2423.16
Volume: 2.548B (+78.68%). A noticeable volume increase to start 2007. It was not just up, but surging, the highest in a couple of months. You can call it a reversal on volume, but it also bounced off the 50 day EMA with authority on that same strong volume. It was likely just a lot of pent up action given the 4-day weekend and not overly suggestive of either side getting the advantage.
Up Volume: 1.579B (+1.132B). Upside trade nearly doubled up downside trade, a more bullish than bearish indication.
Down Volume: 868M (-72M)
A/D and Hi/Lo: Advancers led 1.08 to 1. Was in excess of 2:1.
Previous Session: Decliners led 1.47 to 1
New Highs: 150 (+30)
New Lows: 46 (+9)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ bolted out of the blocks and rallied to 2455 on the high. That did not take it out of its 6 week lateral range, however. It fell and tapped the 50 day EMA (2397) on the low, but did not break down, rebounding to close near the 18 day EMA. A big indecision question mark on the session as the buyers took their shot, the sellers then took theirs, and both gave up. That keeps NASDAQ in its range from 2400 to 2471, trying to consolidate and keep the advance going. Early on the large caps led the move; by the close they could only scratch out a 0.14% advance.
SOX (-0.61%) tried the advance as well as Goldman upgraded some chips and downgraded some others. Ultimately it gave u and closed well below the 50 day EMA (469) after managing to recover from an intraday breach of the 200 day (462.52). Hardly a good looking picture but managing once more to hang onto the 200 day SMA as best it can.
SP500/NYSE
Stats: -1.7 points (-0.12%) to close at 1416.6
NYSE Volume: 2.612B (+155.03%). Now THAT is some big volume. Trade soared to a level not seen since late September. With the test higher, then lower, and flat finish, it was just a lot of churn as the buyers and sellers fought it out.
A/D and Hi/Lo: Advancers led 1.11 to 1. As with NASDAQ, strong early breadth gave way with the afternoon turn over.
Previous Session: Decliners led 1.59 to 1
New Highs: 324 (+158). Solid as the mid-caps closed positive and the small caps were up early.
New Lows: 36 (+18)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 lagged all session. Yes it was up in the early surge, but it was relatively weaker. It sold off in the afternoon, the first to turn negative. It did manage to rebound, and it was a positive to see the July up trendline (1408) hold on the intraday low and send it back up. Big doji that managed to hold the 18 day EMA on the close. Not giving up, still struggling to move through 1430ish for another breakout.
SP600 (-0.20%) was up solidly early on but it too got the dips and closed negative. It managed to hold the 50 day EMA on the low once gain and that precipitated a rebound. A decent recovery, but still in the middle of its recent pullback range after hitting that new high briefly in early December.
DJ30
HD with the resignation of its beloved CEO and WMT's stronger than expected holiday sales did what they could to help the blue chip index, but in the end they could not offset the selling as the Dow erased a 100+ point rally. Intraday DJ30 hit a new all-time but of course that did not hold. Still in the uptrend, still holding the 18 day EMA on the lows.
Stats: +11.37 points (+0.09%) to close at 12474.52
Volume: 161M shares Friday versus 126M shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
After an extra day of wait the buyers got their shot and so did the sellers. Some new money rushed in during the morning session, and with big fat intraday gains sitting there the sellers could not resist and they got their licks in as well. Neither was the stronger as the indices closed flat though you can argue the last hour rebound shows some life. That looked more like a limp home than any renewed buying effort, however.
Basically Wednesday allowed the buyers and the sellers to get the first of the year moves out of their systems, and in the end it left the indices where they ended 2006. That also left a lot of stocks still in solid position to move higher if that is where the big money wants to take it.
We are still concerned that there will be some early year profit taking after the July to December run higher. You can argue that the intraday rollover that gave back some fat gains is a sign of just that sentiment in the market. Given the market's ability to bounce back late and hold its 2006 closing position we are not going to assume that is the case; if good stocks make good moves from here we will not ignore them. We will also continue to keep a pretty tight leash on current positions, however, until the market shows more of its hand. Again, we see some good stocks in good position, and ultimately they tell the tale.
Support and Resistance
NASDAQ: Closed at 2423.16
Resistance:
The 18 day EMA at 2426
2458 is the July up trendline
2468.42 is the November 2006 high
2471 is the December 2006 high
2477 from January 1999
2493 is an interim peak from February 1999
Support:
2412 from June 1999 low
The 50 day EMA at 2397 held Wednesday
2384 is an interim peak from January 1999
2379 is the October high.
2376 is the April high, the former post-2002 high
2368 is the early October handle high.
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1416.63
Resistance:
1425 is an interim high from November 1999
1432 is the December 2006 high
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
The 18 day EMA at 1416
1409 is the July up trendline, and it held on Wednesday
1408 is the November high
1401 is a low from April 2000
The 50 day EMA at 1396
1390 is the October high.
1389 is a low from November 1999
1378 is a low from May 2000
1371 to 1373 is the December 2000 peak and the January 2001 peak
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February
2002 low at 1360.
Dow: Closed at 12,474.52
Resistance:
12,499 is the December intraday high.
Back to 8.6% above the 200 day SMA, about the point where DJ30 started to struggle in late October.
Support:
The 10 day EMA at 12,443
The 18 day EMA at 12,403
12,361 is the November 2006 high
The 50 day EMA at 12,228
October high is 12,167
11,986 is price support from mid-October and the early November low.
11,865 from the early October consolidation
11,750.28 is the prior all-time high
11,723 is the January 2000 closing high
11,670 is the May intraday high
11,642 is the May 2006 closing high
11,488 is the early September high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 3
Construction spending, November (10:00): -0.2% actual versus -0.6% expected, -0.3 prior (revised from -1.0)
ISM index, December (10:00): 51.4 actual versus 50.0 expected, 49.5 prior
FOMC minutes, December (2:00)
January 4
Initial jobless claims (8:30): 320K expected, 317K prior
Factory orders, November (10:00): 1.4% expected, -4.7% prior
ISM Services, December (10:00): 57.0 expected, 58.9 prior
January 5
Non-farm payrolls, December (8:30): 115K expected, 132K prior
Unemployment rate (8:30): 4.5% expected, 4.5% prior
Hourly earnings (8:30): 0.3% expected, 0.2% prior
Average workweek (8:30): 33.9 expected, 33.9 prior
End part 1 of 3
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